ET Now: RBI's GDPgrowth assumptions for FY13 is 7.3%. The GDP for the quarter gone by was 6.1%. Do you think Indian economy in FY13 could really report such a strong uptick?

Dr C Rangarajan: I think so. Our own estimate was that the Indian economy in the current fiscal will grow at 7.5%. And 7.3% and 7.5% are close to each other. Therefore I believe the estimate made by the Reserve Bank is very much feasible and possible. I see several reasons why things should be better this year as compared to last year.

Inflation will be lower this year as compared to last year and I also believe that some of the important infrastructure areas such as power, coal and roads will do better this year as compared to last year. Therefore I have the feeling that the current year we should see the economy picking up a little better than last year.

ET Now: The RBI has cut the repo rate by 50 bps and it has clearly stated that it may not cut repo rates further. What are the policy measures and reforms that we can expect from the government to propel the GDP growth and take it up to 7.3%?

Dr C Rangarajan: The budget has already been presented and it has set out certain directions in which the economy can move. One of the most important contributions that the budget can make towards enhancing growth is by containing the fiscal deficit. It has been assured that the fiscal deficit in the current fiscal will be maintained at 5.1% of the GDP. This will be a sharp decline from the previous year.

Further, as I mentioned in the answer to the previous question, the government will move ahead and perhaps ensure that the targets set for capacity creation and output in the key infrastructure sectors like coal, power, roads and railways will be achieved during this year. This itself, in my view, will act as a stimulant for private investment and private output. Therefore, there is every reason to believe that the economy can grow at a faster rate during the current fiscal.

ET Now: At a time when the global economic growth is still anaemic and global commodity prices are still high, do you think Reserve Bank of India has frontloaded the rate cut and has taken a big gamble?

Dr C Rangarajan: The possibility before the Reserve Bank of India was to go in 2 steps, perhaps reduce rates by 25 basis points initially and then further cut it by another 25 basis points. All that the Reserve Bank has done now is in the light of the fact that the decline in industrial production is far more than what was originally expected. Perhaps it may be best to do it at one go.

But as the Reserve Bank of India has clearly indicated in its guidelines, further reductions will depend upon how inflation behaves in the coming weeks and coming months. The manoeuvrability or the scope for the Reserve Bank of India will be conditioned by what happens to inflation.

ET Now: Just stretching that point about inflation, it is expected to remain sticky and fiscal consolidation is very important at this juncture. There are talks of hike in fuel prices for the last 2 months and it has still not come. When will the fuel price hike take place and what would be the quantum of the same, if at all you have any indication?

Dr C Rangarajan: The level of subsidies indicated, particularly for the petroleum sector, in the budget essentially implies that policy actions will be taken during the year in order to adjust the prices. This is almost evident from the numbers and the finance minister has said on many occasions that he would ensure that the subsidies would be maintained at the budgeted level. The timing of when this will happen, when the prices will be adjusted in relation to the petroleum sector, will depend upon a variety of factors but it is my view that one should expect that to happen as early as possible.

ET Now: But the budget was tabled on 16th of March and it has been over a month. What is stopping the government from increasing oil prices because crude prices globally are refusing to come down?

Dr C Rangarajan: These are political decisions and as the budget has been presented and the parliament is in session, there would be further discussion on the budget. So perhaps they will wait for the full budget discussions to be over before taking any decision.

ET Now: You have been on the hot seat before in your earlier avatar as Reserve Bank of India governor. So if you were the current Reserve Bank of India governor, would you have done a 50 basis cut or a 25 basis cut?